WASHINGTON — Two of the nation’s most powerful bank regulators were once again at each other’s throats.

At a public meeting three weeks ago, John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.”

Behind the scenes, the two regulators have been clashing over a host of issues, officials said, be it the administration’s coming regulatory overhaul or Ms. Bair’s campaign to shake up the top management at Citigroup.

The long-running and deeply personal feud between Mr. Dugan and Ms. Bair, two Republican holdovers with similar career paths in Washington, is now helping to shape President Obama’s attempt to revamp financial regulation aimed at preventing the regulatory lapses that contributed to the economic crisis.

Some of Mr. Obama’s advisers and some senior Democratic lawmakers have suggested creating a single bank regulator. But the administration’s current version, which could be announced as early as this week, would not combine the regulatory agencies. Instead, it would give Mr. Dugan and Ms. Bair significant new powers — and could intensify their turf battles.

Ms. Bair and Mr. Dugan declined to comment for this article.

The Treasury secretary, Timothy F. Geithner, the main author of the administration’s plan, in recent weeks has refereed among the competing views of Ms. Bair, Mr. Dugan and Ben S. Bernanke, the Federal Reserve chairman. The four generally agree that, if starting from scratch, they would not create the cumbersome system that has evolved piecemeal over the last 150 years.

But with the administration and crucial lawmakers rejecting a single agency, the four officials have often disagreed on just how to streamline and strengthen regulation. Some points of contention include views on which agencies should play central roles in overseeing financial companies whose troubles could pose problems for the overall system, and whether to create a new agency to protect consumers from abusive mortgages or credit cards.

Officials say the latest version of the plan, in large part, is a compromise of various viewpoints.

“On an issue like regulatory reform, with so many differing opinions, the expectation is not that all sides will agree on the final product,” said Andrew Williams, a Treasury spokesman. “But the administration worked hard to gather information from all parties to prevent a crisis like this from ever happening again.”

Mr. Obama’s economic team has often had internecine battles over policy, but the president’s advisers generally fall in line once he makes the final decision. But Mr. Dugan and Ms. Bair are semi-independent regulators whose feuds have multiplied — and at times erupted in public.

Most of the banking industry couldn’t be happier with the current system. Bank executives and lobbyists say that the system, while flawed, enables regulators to tailor rules for a variety of financial institutions. They maintain that the policy issues for small banks differ markedly from, and often conflict with, those involving the large banks.

“It’s healthy that the regulators disagree,” said Camden R. Fine, head of the Independent Community Bankers of America. “Out of their tension comes good, balanced policy.”

But the fractured nature of regulation also makes it easier for financial institutions to shop for the friendliest regulator or pit agencies against one another, lawmakers say. To reduce that risk, the administration is expected to propose eliminating one of the weakest agencies, the Office of Thrift Supervision. The agency was faulted for missing problems at some of the largest savings associations, like Washington Mutual and IndyMac, as well as at the American International Group, which it regulated because the company owns a thrift.

Two Democratic senators, Christopher J. Dodd of Connecticut and Charles E. Schumer of New York, have urged Mr. Geithner to combine the four federal bank regulators into one.

“With multiple bank regulators, you get the worst of both worlds,” Mr. Schumer said. “Some banks get conflicting signals. Other banks get no signals at all.”

Mr. Dodd said that, despite his support for a single regulator, he favored the F.D.I.C.’s continued role as the manager of the bank insurance fund. He said the plan was intended to reduce regulatory gaps but not discourage healthy debate among officials.

“Despite the fact that I’m an advocate of a single regulator, I like the idea of some tension,” Mr. Dodd said.

Other Democrats, notably Representative Barney Frank of Massachusetts, have so far succeeded in convincing the administration that such a proposal is more political trouble than it is worth. And some banking experts say that the number of regulators is not the crucial factor.

“What’s most important is who the leaders are,” said William K. Black, a former senior lawyer for the agency that became the Office of Thrift Supervision, and who brought cases against many savings and loans in the 1990s.

The Obama plan, still being drafted by Mr. Geithner, is likely to give the F.D.I.C. new authority to seize and shut down financial companies in serious trouble.

Rest of article at link above.

I know this is of interest to folks here, considering that so many of us have issues with the way the Banking industry has been bailed out, and the questionable folks that are overseeing Treasury.

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